Abstract
An underlying assumption of all theories of monetary policy is that the domestic money supply can be controlled by the central bank. Whether one chooses to analyse the effects of changes in the money supply through a Keynesian interest rate mechanism or a Monetarist real balance effect, a prerequisite to making either analysis relevant is that the monetary authorities of the country have the power to limit and change the domestic money supply. A monetary literature, therefore, evolved to analyse whether the tools available to the domestic monetary authorities provided sufficient effects to offset the influence of the public and the banks on the domestic money supply (e.g. Brunner, 1968, Cagan, 1965).
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